Though it is early in the process, Freddie Mac said it has seen a tangible improvement in the quality of appraisals of loans it buys since the Home Valuation Code of Conduct took effect.Patricia McClung, Freddie's vice president of offerings management, said at the Mortgage Bankers Association's convention here last week that of the appraisals the government-sponsored enterprise receives, 15% more have come acceptably close to the automated valuation model it runs as a check.
The improved quality of mortgages bought by Freddie and Fannie Mae reduces the repurchase risk for mortgage lenders because of lower defect rates, she said.
Marko Berishaj, a vice president at DartAppraisal.com, a Troy, Mich., management company, said the code is not responsible for a rise in appraisal costs. He cited three factors, including supply and demand: more appraisals ordered but fewer available appraisers. In addition, he said, the cost for appraisers to comply with new certification requirements is being passed along. And finally, the requirement for a market conditions report has also added to expenses.
During a question-and-answer session, one mortgage banker said that in her experience management companies are using out-of-area appraisers to do desk reviews and she has had to educate these people.
Kathy Coon, the chief appraiser at FNC Inc.,** an Oxford, Miss., technology company, replied that if the mortgage banker was using an appraisal management company but had to educate the appraiser it was time to find a different company. But another mortgage banker in the audience countered that, as correspondents, they do not always get to choose which appraisal management company to use. Otherwise, it would be easy to switch, he said.
**(Appraiser Active) They can call themselves whatever they want, but they're still an AMC
This is a story of how my $290,000 home was appraised for $115,000.
The tale begins in 2004, when my wife and I decided to buy a three-bedroom, two-bath 1920s bungalow in Ormewood Park in southeast Atlanta. It had been lovingly renovated by the previous owners, who’d also added a new master bedroom and dining room.
The appraiser hired by the lender, Wells Fargo, took measurements and shot several photos as he tromped through our toy-strewn house.
He jotted a few things down on a form and left.
We put it out of our minds until mid-June, when the appraisal results arrived in the mail. I couldn’t believe what I read.
How could our house, purchased just five years before for almost $300,000, be worth just $115,000?
Didn’t the appraiser notice the pristine renovation? The original fireplace? What about the high ceilings, the plantation shutters, hardwood floors, granite counters and the spacious master bath?
Another shock: The $115,000 valuation was far below what our home had sold for in 2002, before being renovated and enlarged.
In the meantime, I scoured the report to try to figure out what had happened.
The appraiser used three recent sales in our area —comparables — to generate what he deemed our house’s market value. But two of those sales were foreclosures. One nearby house had sold “as is” for $129,000. The other, located on a traffic-clogged main street a half-mile and a world away from our quiet street, had gone for just $80,000.
I decided to check on the higher-priced home. Its new owner welcomed me inside and showed off its handsome hardwood floors and shiny stainless-steel appliances. But he laughed when I explained why I showed up on his doorstep.
When he’d bought it, he said, the house was in terrible shape. The floors were covered with damp, mildewed carpet. The water heater was broken. Someone had ripped out and stolen the appliances. The kitchen sink didn’t work.
He’d fixed it up nicely, though it lacked the back porch and dining room our home has. But still, our bank’s appraiser had valued our home much lower than his — before he’d made any improvements.
A Wells Fargo spokesman said the company takes appraisals very seriously.